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Mbad 612: Managerial Accounting Question Paper
Mbad 612: Managerial Accounting
Course:Master Of Business Administration
Institution: Chuka University question papers
Exam Year:2013
CHUKA
UNIVERSITY
UNIVERSITY EXAMINATIONS
EXAMINATION FOR THE AWARD OF DEGREE OF
MASTER OF BUSINESS ADMINISTRATION
MBAD 612: MANAGERIAL ACCOUNTING
STREAMS: MBA Y1S2 TIME: 3HOURS
DAY/DATE: TUESDAY 6/8/2013 5.30 P.M. – 8.30 P.M.
INSTRUCTIONS:
Answer FOUR questions.
Do not write on the question paper.
QUESTION ONE:
(a) Describe the different functions of management accounting system. [4 marks]
(b) Mrs. Njeru has taken out a lease on a shop for a down payment of Sh.500,000. Additionally, the rent under the lease amounts to Sh.500,000 per annum. If the lease is cancelled, the initial payment of Sh.500,000 is forfeited. Mrs. Njeru plans to use the shop for sale of clothing and has estimated operations for the next twelve months as follows:
Sh ‘000’ Sh.’000’
Sales 11,500
Less: VAT 1,500 10,000
Wages 1,200
Rent including down payment 1,000
Rates, heating and insurance 1,300
Audit/legal/general expenses 200 8,700
Profit before tax 1,300
It is estimated that one half of Mrs. Njeru’s time will be devoted to the business even though no provision has been made for this cost. She is undecided whether to continue with her plans because she knows that she can sublet the shop to a friend for a monthly rent of Sh.55,000 if she does not use the shop herself.
Required:
(i) Explain and identify the ‘sunk’ and ‘opportunity’ cost in the situation depicted above. [3 marks]
(ii) State that decision Mrs. Njeru should make according to the information given supporting your conclusion with a financial statement. [3 marks]
(c) The following data relates to a manufacturing department for a period:
Forecast
Data Actual
Data
Sh. Sh.
Direct material cost 100,000 150,000
Direct labour cost 250,000 275,000
Production overhead 250,000 350,000
Direct labour hours 50,000 hours 55000 hours
Job H4 was one of the jobs done during the period. On this job, direct material costingSh.7,000 and direct labour costing Sh.4,000 (800 hours) were incurred.
Required:
(i) Calculate the production overhead absorption rate predetermined for the period using direct labour hours. [3 marks]
(ii) Calculate the cost of job H4 based on the rate calculated in (i) above. [4 marks]
(iii) Calculate the under or over-absorption of production overheads for the period and state how they will be accounted for in the financial statement. [4 marks]
(d) Describe the features that distinguish ABC system from traditional costing system. [4 marks]
QUESTION TWO: (25 MARKS)
(a) Explain the function of budgets to an organization. [6 marks]
(b) Many organizations are embracing zero base budgeting (ZBB) as opposed to incremental budgeting system. What is the justification for this initiative? [6 marks]
(c) A division of Lube Chemicals Ltd is engaged in the production of two products A and B. These products are sold to external customers. Information regarding proudcts, costs and sales levels is as follows:
Product A B
Materials required:
X(Kg)
2
3
Y(Litres) 1 4
Labour (hours):
Skilled
4
2
Semi-skilled 2 5
Sales (units) 2000 1500
Opening stocks (units) 100 200
Closing stocks of materials and finished goods will be sufficient to meet 10% of demand. Opening stocks of material X was 300 kg and for material Y was 1000 litres. Material prices are Sh.10 per kg for material X and Sh.7 per litre for material Y. Labour costs are Sh.12 per hour for the skilled workers and Sh.8 per hour for the semi-skilled workers.
Required:
(i) Production (in units)
(ii) Materials usage (in Kg and litres)
(iii) Material purchases (Kg, litres, KSh.)
(iv) Labour (hours and sh.) [13 marks]
QUESTION THREE (25 MARKS)
(a) Outline the assumption of cost-volume-profit analysis. [5 marks]
(b) The summarized profit and loss statement for Mitunduri Tea Factory for the last year is as follows:
Sh.000 Sh.000
Sales (5000) units 1000
Direct materials 350
Direct wages 200
Fixed production overhead 200
Variable production overhead 50
Fixed selling & Administrative costs 300 1100
Net profit/loss (100)
At a recent board meeting, the Directors discussed the results following which the Chairman has asked suggestions to improve the situation.
As a management accountant, evaluate the following mutually exclusive plans and recommend the most preferable (your recommendation must be supported by appropriate computations).
Plan I: Pay salesman a commission of 10% on sales and thus increase sales by 20%.
Plan II: Reduce selling price by 10% which it is estimated, would increase sales volume by 30%.
Plan III: Increase direct wages by 25% as part of productivity pay deal. It is hoped that this would increase production by 10% and sales by 30% but advertisement cost would increase by Sh.50,000.
Plan IV: Increase sales by additional advertising of Sh.268,000 with increased selling price of 20% setting a profit margin of 10% of sales value.
[9 marks]
(b) The costs per unit of three products X, Y and Z are given below:
PRODUCTS
X Y Z
Direct material (Sh.) 20 16 18
Direct labour (Sh.) 12 14 12
Variable production overhead 8 10 6
Fixed costs 6 6 4
46 46 40
Profit 18 14 12
Selling price 64 60 52
No. of units produced 10,000 5000 8000
Production arrangements are such that if one product is given up, the production of others can be raised by 50%. The directors propose that product Z should be discontinued because it has the lowest contribution.
Required:
(i) An analysis of the present profit position. [2 marks]
(ii) A computation of profit under the proposed situation. [4 marks]
(iii) Recommend with reasons whether product Z should be discontinued
or not. [3 marks]
QUESTION FOUR: (25 MARKS)
(a) Distinguish between variable and absorption costing techniques. [6 marks]
(b) R Limited is considering its plans for the year ending 31s December 2012. It makes and sells a single product which has budgeted costs and selling price as follows:
Sh. Per Unit
Selling price 45
Direct materials 11
Direct labour 8
Production overhead:
- Variable 4
- Fixed 3
Selling overhead:
- Variable 5
- Fixed 2
Administrative overhead:
- Fixed 3
Fixed production overhead costs per unit are based on normal annual activity level of 9600 units. These costs are expected to be incurred at a constant rate throughout the year.
Activity levels during January and February 2012 are expected to be:
January February
(Units) (Units)
Sales 7000 8750
Production 8500 7750
Assume that there will be no stocks held on 1 January 2012.
Required:
(i) Prepare in columnar format, profit statements for each of the months of January and February 2012 using
? Absorption costing
? Marginal costing [11 marks]
(ii) Reconcile the profits for any differences. [3 marks]
(c) Explain the following terms indicating clearly how they would be accounted for in process costing.
(i) By-products [1 mark]
(ii) Abnormal gain [1 mark]
(iii) Equivalent units [1 mark]
(iv) Normal loss [1 mark]
QUESTION FIVE: (25 MARKS)
(a) Describe briefly the managerial use of variance analysis. [5 marks]
(b) The standard cost case for product Exewye reveals:
Sh.
Standard materials:
2kg of A @ Sh.2 per Kg 4
1kg of B @ Sh.6 per Kg 6
Direct labour – 3 hours @ Sh.6 per hour 18
Variable overheads – 3 hours @ Sh.4 per
direct labour hour 12
Total standard cost per unit 40
===
It is proposed to produce 10000 units of Exewye in the month of March and budgeted cost based on the information contained in the standard cost card are as follows:
Direct materials:
A : 20000 Kg @ Sh.2 per Kg 40,000
B : 10000 Kg @ Sh.6 per Kg 60,000
Direct labour (30000 hours @ Sh.6
per hour
180,000
Variable overhead (30000 hours @ Sh.4
per direct labour hour) 120,000
400,000
======
The actual results are:
Direct materials:
A : 19000 Kg @ Sh.2.2 per Kg 41,000
B : 10000 Kg @ Sh.5.60 per Kg 56,560
Direct labour (28500 hours @ Sh.6.40
per hour
182,400
Variable overheads 104,000
Actual production: 9000 units 384,760
======
From the above, calculate the following variances:
Actual output of finished product was 420,000 Kg.
Calculate:
(i) Material price variance [3 marks]
(ii) Material usage variance [3 marks]
(iii) Labour cost variance [3 marks]
(iv) Variable overhead cost variance [3 marks]
(c) A company has prepared a schedule of estimated overhead costs for the coming year. The schedule was prepared on assumption that production would amount to 800,000 units. Costs have been classified as either fixed or variable according to the judgement of the financial controller.
Item Total Cost. Sh’000’
Indirect materials (variable) 37,500
Indirect labour (171000 fixed) 194,200
Rent (fixed) 236,420
Electricity (30% fixed) 27,120
Equipment depreciation (fixed) 181,000
Equipment maintenance (8,500 fixed) 24,330
Property taxes (Sh.6350 fixed) 14,100
Data processing (Sh.9470 fixed) 11,220
Technical support (fixed) 16,940
(i) Determine the cost estimation equation using account analysis method. [5 marks]
(ii) Describe what is meant by ‘goodness of fit’ and ‘standard error of the coefficient’,
in relation to cost estimation. [3 marks]
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